2021 (10) TMI 883 - HC - VAT and Sales Tax

Warrant of arrest - willful defaulter - Recovery of arrears of sales tax dues - allegation is that the defaulter is willfully withholding payment of the arrears - dishonestly transferring the father's property to the name of his minor son - HELD THAT - The 'will' by which the property has been bequeathed to the defaulter's son by the defaulter's father is produced as Ext. P6 and from a perusal of the same it can be seen that the property bequeathed is the balance extent available with Sri Johny from out of the property obtained by him as B schedule in the partition deed No. 1080/1965 of Oorakam SRO and purchase certificate No. 1480/1977 issued by the Land Tribunal, Thrissur. Therefore, the finding in Ext. P7 that the property involved is hereditarily acquired by Sri. Johny over which the defaulter has right cannot be sustained - Even according to the District Collector the property of the defaulter's father was bequeathed to the defaulter's son. Therefore, the finding of the District Collector that the defaulter can claim for his right on the property and pay the dues using the said property is not sustainable. The reports of the revenue officials that, the defaulter is living in a highly financial family background with financially sound relatives and friends are not factors relevant under S. 65 of the Act to make an order for the detention of the defaulter in the civil prison. No objective assessment of facts and the factors relevant under S. 65 of the Act was made by the District Collector to make an order for the detention of the defaulter in civil prison. There is nothing on record before the District Collector to hold that the defaulter has means to pay the arrears, or the defaulter is willfully withholding payment of arrears of sales tax or has dishonestly transferred his property or guilty of fraudulent conduct. The petitioner's husband, the defaulter is set free - Petition allowed.

Issues Involved:
1. Legality of the defaulter’s arrest and detention under Section 65 of the Kerala Revenue Recovery Act, 1968.
2. Compliance with the High Court’s previous judgment and directions.
3. Validity of the District Collector’s findings regarding the defaulter’s means and property transfers.
4. Applicability of inheritance law and property rights in the context of revenue recovery.

Issue-wise Detailed Analysis:

1. Legality of the defaulter’s arrest and detention under Section 65 of the Kerala Revenue Recovery Act, 1968:
The defaulter was arrested and detained in civil prison by the District Collector under Section 65 of the Kerala Revenue Recovery Act, 1968, for arrears of sales tax dues amounting to ?17,73,432/-. The District Collector issued an order (Ext. P1) to arrest and detain the defaulter, which was later quashed by the High Court due to the lack of a speaking order. The High Court directed the District Collector to conduct an independent inquiry to determine if the defaulter had means, held property in benami, or transferred assets to avoid payment. After a show cause notice and subsequent explanations from the defaulter, the District Collector issued a new order (Ext. P7) to arrest and detain the defaulter, which was challenged in this writ petition.

2. Compliance with the High Court’s previous judgment and directions:
The High Court had previously quashed the initial order (Ext. P1) due to insufficient evidence and directed the District Collector to conduct a thorough inquiry. The District Collector’s subsequent order (Ext. P7) was issued after conducting a fresh inquiry and issuing a show cause notice to the defaulter. However, the High Court found that the District Collector did not provide new facts or materials to justify a different conclusion from the previous judgment. The High Court emphasized that the District Collector’s findings must be based on objective assessments and relevant factors under Section 65 of the Act.

3. Validity of the District Collector’s findings regarding the defaulter’s means and property transfers:
The District Collector’s findings in Ext. P7 included that the defaulter’s father had transferred hereditarily acquired property to the defaulter’s minor son to evade payment of arrears. The High Court found that the property bequeathed to the defaulter’s son was not hereditarily acquired but obtained through a partition deed and purchase certificate. The High Court also noted that the defaulter would only have a fractional right in his father’s property if his father died intestate. Therefore, the District Collector’s finding that the defaulter could claim his right on the property and pay the dues was not sustainable.

4. Applicability of inheritance law and property rights in the context of revenue recovery:
The High Court highlighted that the defaulter’s right to his father’s property would only arise if his father died intestate. The property in question was bequeathed to the defaulter’s son through a will, which was probated. The High Court found that the District Collector’s understanding of inheritance law was flawed and that the defaulter’s right to the property could not be assumed without proper legal basis. The High Court also noted that the reports of the defaulter living in a financially sound family background were not relevant factors under Section 65 of the Act for ordering detention.

Conclusion:
The High Court quashed Ext. P7, finding that the District Collector did not make an objective assessment of the relevant factors under Section 65 of the Act. There was no evidence to show that the defaulter had means to pay the arrears, was willfully withholding payment, or had dishonestly transferred property. The defaulter was set free, but the respondents were allowed to take fresh steps to recover the amount due, in accordance with the law. The writ petition was allowed with no order as to costs.

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